The Rally Ends & Inflation Begins

Told you that FedEx would play a roll in the rally. Today the company announced better than expected earnings but lowered their forecast based on the rising cost of energy. Probably wise on their part, with oil hitting $83.90 as an intraday high. Oil won't get better near term with producers in the Gulf still being jitterish about hurricane season. Also the low dollar doesn't help either.

Two more things about the dollar. First, the Canadian dollar hit parity with the US dollar. Uh, what? My Canadian nickel is actually worth 5 cents? Get out! And second, the Saudi's did not cut their rate in step with the US for the first time. Does this signal the end of their pegging their currency with the US dollar? If so, that is bad news for the dollar and the economy. If the Saudi's end the peg, so will other countries. This will trigger a mass pull out of the dollar, which will make our currency fall further. People, a rate cut cannot help this sort of issue. It would only enhance the issue.

Long term bonds continue to sell off, pointing to inflation. Oil hitting record highs, points to inflation. The lower dollar, points to inflation. Higher gold, points to inflation. You can't cut rates anymore in the face of inflation.

Want to guess what stock was my best performer on the day? Barrick Gold (ABX) was up 5.68% today. The stock is up over 30% on the month.

And just one more issue from my little meeting today. The genius who kept proclaiming the profitability of FHA loans, said that he fully expects mortgage interest rates to come down and we will see a refinance boom (though small) next year. Hey genius! If long term bonds keep selling off (which they will unless the dollar rebounds and oil comes down) the yield will increase pushing mortgage rates higher. Obviously I don't share his view. The mortgage arena is going to stay ugly next year. Rates, at best, will remain at current levels or move slightly higher. Rates aren't bad now.

If you are facing an ARM reset set and do not have a pre-payment penalty, do yourself a favor, get out of the loan sooner than later.